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Argument Recap: AT&T v. Concepcion

You know it’s been a less-than-thrilling morning at the Supreme Court when the only time the courtroom audience really perked up was at a rather inexplicable joke by Justice Stephen Breyer about a “9,000-foot cow.” (Something about how mountainous Switzerland could discriminate against other European countries’ milk products by enacting the facially neutral law that it will only buy milk from cows that graze in meadows above 9,000 feet.) Perhaps that is inevitable in a case that involves preemption doctrine, state contract principles of unconscionability, and forced arbitration. But as complicated as the legal argument in AT&T v. Concepcion may have been in the Court today, it was perhaps just as impenetrable as what is at the core of the case: the lengthy, legalese-heavy, fine print that many of us never read in our cell phone contracts (or employment contracts, health insurance agreements, or other contracts that consumers are effectively forced to sign these days in order to obtain goods and services). And in many of those contracts—as in the contract the Concepcions signed with AT&T—the fine print will require that all disputes be resolved through arbitration, not through the court system, while banning class actions. Accordingly, the Court in Concepcion could decide whether individuals can band together to hold big corporations accountable for misconduct—including discrimination in the workplace and widespread consumer fraud in the marketplace—or whether corporations can get away with wrongdoing so long as they do it on an individually small scale, making individual claims too small to pursue.

The Concepcions sued AT&T on behalf of themselves and all others who were charged $30.32 in sales tax for a supposedly free mobile phone. If successful, the class action could have yielded millions of dollars for all of AT&T’s customers who were improperly charged. But because the arbitration agreement contained a provision banning class actions, the Concepcions were faced with fighting just for their own $30, an amount over which it’s hardly worth the time and expense of pressing a legal claim against a corporate giant like AT&T. The company would essentially get away with allegedly fraudulent behavior because the fraud was, for each consumer, not worth fighting over when the expense of filing fees, lawyers, etc., are taken into account.

Fortunately for the Concepcions, California law holds a contractual ban on class actions unconscionable—and thus unenforceable—if it serves to insulate one party to the contract from liability for wrongdoing. Finding this general principle of contract law applicable to the class-action arbitration ban in AT&T’s cell phone contract, the lower court held that the ban was unenforceable. AT&T appealed to the Supreme Court, arguing that California’s unconscionability law is preempted by the Federal Arbitration Act (FAA), which prohibits states from discriminating against arbitration contracts, while also preserving generally applicable state contract law.

This morning, a majority of the Justices seemed to agree with the Concepcions that the FAA does not preempt state law protecting consumers and employees. As Justice Breyer succinctly stated, California’s unconscionability “principles apply to litigation. They apply to arbitration. What's the problem?”

Justice Elena Kagan also pointed out that the Court’s role in enforcing the FAA is not to sit in judgment over the wisdom of California’s unconscionability law, but rather to determine whether it runs afoul of the FAA’s requirement that arbitration contracts be treated like any other contract. As Justice Kagan observed to Andrew Pincus, counsel for AT&T, “it may be a good unconscionability doctrine or it may be a bad unconscionability doctrine, but it's the State's unconscionability doctrine.” Deepak Gupta, counsel for the Concepcions, echoed this point in his opening remarks, noting that “the question here is not what this Court would decide if it were sitting as the Supreme Court of California and applying the State’s common law in the first instance. Rather, the question is whether the State law at issue falls within a statutory savings clause that expressly preserves contract defenses available at law or in equity.”

In our Constitution’s federalist system and under the text of the Federal Arbitration Act the answer is clear. State courts are vital in protecting the rights of American consumers, and the FAA specifically preserves a critical role for state law. There is no plausible reading of the text and history of the Constitution’s Supremacy Clause that supports AT&T’s argument for broad preemption of state court rulings. While Chief Justice John Roberts and Justice Samuel Alito appeared this morning to join Mr. Pincus in trying to come up with support for preemption in this case, it appears that they may come up a few votes short (with the usual caveat that it is always a risky business to predict how the Court will rule based on oral argument).

A ruling for the Concepcions would ensure that Americans can hold corporations accountable through class actions for misconduct that affects a large number of consumers. And while I’m still not exactly sure where Justice Breyer was going with his 9,000-foot cow hypothetical in this morning’s argument, I do know that corporations shouldn’t be allowed to commit fraud a few dollars, and one consumer, at a time.